All Posts
European climate tech companies raised $18.9b in 2022. So where is the money going?
European climate tech startups raised $18.9b in 2022 and have raised $4.8b so far this year, according to our ClimateTech 2023 report.
Paris, Stockholm, and London are Europe’s biggest climate tech investment hubs. Funding for European climate tech companies increased by 14% in 2022 with the most capital flowing into mobility startups ($7.1b), clean energy companies ($4.3b), and circular economy ventures ($2.4b).
From carbon removal to glass made from wood, and a host of exciting startups to watch, there are huge opportunities for investors across climate tech.
Here’s 10 climate tech investment trends to watch:
1. The Whole Carbon Management Area is Going to be Important
Lance Uggla, General Atlantic, GA Climate
Large global players want support in managing supply chains, mapping carbon footprints, and reaching net zero targets. The whole carbon management area – credits, measurement, verification, benchmarking, and reporting – is going to be important as we offset those hard-to-abate emissions.
We’re seeing a lot of activity in emissions management and making construction more energy efficient. Plus, everything around electrification and powering EVs is on an upward trend. Not just new EV players, but the charging infrastructure, batteries, and tech that connects the car back to the home; we’re seeing more entrepreneurs building companies in that space.
2. More VCs are Looking at Deep Tech
Benjamin Joffe, SOSV
The food tech category has been affected by the economic downturn and the loss in value of Beyond Meat casts a long shadow, but we think the best is yet to come. There’s a new wave of exciting companies in the fermentation space, cellular agriculture, and mushroom-based products, as well as the pick-and-shovel tools that will accelerate the entire industry.
Industrial companies are also under pressure to reduce emissions and, in addition to the expensive tech, there are new startups that provide a green discount from the get-go. Now, more VCs are looking at this kind of deep tech and adding scientists and engineers to their teams.
3. Jobs Will be Affected by the Transition to Net Zero
Sandra Malmberg, EQT Ventures
A third of jobs in the EU will be affected by the transition to net zero. We invested in Sana Labs, an AI-powered learning tool, which upskilled 200,000 nurses during the pandemic. We’ll see the same need for edtech platforms, for upskilling and reskilling, as we progress to net zero.
4. There’s a Trillion Dollar Data Play in the Energy Space
Will Wells, firstminute capital
We foresee convergence both amongst energy sources (solar, wind, nuclear, etc.) and within each individual energy sub-sector. For example, we see multiple approaches within the electrification space targeting the data moat needed to inform holistic grid management.
There is a trillion dollar data play where storage vs charging vs energy source vs vehicles meet. What happens when Enpal takes on heat pumps, or giants like Northvolt start buying the WeaveGrids and Wallboxes of this world? Things will get very competitive as the market matures, and longevity is key.
5. Supply Chains Will Be Crucial
David Easton, Generation Investment Management
The companies that will be most important for the decarbonisation of industries may not think of themselves as climate tech. We think using more efficient supply chain management software to decarbonise supply chains will be crucial. We’ve also focused on the future of remote work, because while electrifying transport is great, reducing transportation needs in the first place is even better. You’ll also see increasing diversification between teams applying a traditional growth equity and VC skill set and those focusing on capital-intensive investments.
6. More Funding Will Go to Agriculture and the Built Environment
Daria Saharova, World Fund
Most VC money is going into mobility and energy, but these sectors account for just 27% of global emissions. We invest in tech that can contribute to decarbonisation at scale. We focus on the highest-emitting sectors, like agriculture and the built environment, and I expect to see more funding go this way.
7. Climate Tech Investing is Responding to Critical Needs
Clea Kolster, Lowercarbon Capital
Climate tech investing is simply responding to critical needs, whether it’s energy security, food security, or national security. There’s huge interest in technologies for extracting or recycling critical minerals closer to home and with lower environmental footprints. These include metals like lithium, nickel, copper, and cobalt that are necessary for our future energy needs because they’re used in batteries for our cars, electrical wires, solar panels, and wind turbines.
8. There’s Important Capital Attacking Tough Sectors
Jamie Rowles, Planet Fund
In recent years, there have broadly been two buckets of climate tech companies. Climate at the intersection of consumer software or fintech, where generalist tech entrepreneurs are coming in and attacking low-hanging fruit with capital-light software business models. And then a growing universe of nex-gen founders building hard science companies in the hardest-to-abate sectors like food, industry, and real estate. In the short-term, more funding will flow into the first bucket, but there is important capital attacking these tough sectors.
9. Excited About Hydrogen, But Cautious on Plant-Based Alternatives
Frédéric de Mévius, Planet First Partners
We’re very excited about alternative materials, proteins, electrification and energy storage, and bio-inputs in agriculture. Hydrogen is also a key pillar of our thinking and will be a huge sector of the future.
One we’re more cautious about at the moment is plant-based alternatives. We like the sector, but there’s still a mismatch between the product offering and consumer expectations. It seems tough to get consumers to make repeat purchases. We need products to improve further for that sector to become exciting again.
10. We Still Face a Misallocation of Capital in Climate Tech
Christian Hernandez Gallardo, 2150
Reimagining the physical world requires reinventing physical stuff. VCs have traditionally shied away from hard tech, but that’s changing and there’s significant funding for CO2-sucking machines, novel air conditioning architectures, and the scaling of production methods that leverage biology over petrochemicals.
We still face a misallocation of capital though. 50% of climate venture dollars are being invested in mobility, which accounts for 12% of greenhouse gas emissions, while 50% of emissions come from buildings and industry, but the sector receives only 13% of investments. We set up 2150 to address this mismatch and co-invest into critical, but often overlooked problems like lower-carbon cement, high-efficiency windows, and biodiversity monitoring.
Download our ClimateTech 2023 report for more insights from Europe’s top climate tech founders and discover our climate tech startups to watch!
